Commissioner Of Income Tax,Central-1, Kolkata v. Jaqua Industries And Sales Co.pvt. Ltd

OD-13 ITA/48/2014 IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION (Income Tax)ORIGINAL SIDE COMMISSIONER OF INCOME TAX,CENTRAL-1, KOLKATA -Versus- JAQUA INDUSTRIES AND SALES CO.PVT. LTD. BEFORE :THE HON’BLE JUSTICE SURYA PRAKASH KESARWANIAndTHE HON’BLE JUSTICE RAJARSHI BHARADWAJDate : 20[th] December, 2023 Appearance:Mr. Aryak Dutt, Adv.…for the appellant Mr. Anil Kumar Dugar, Adv.Mr. Rajarshi Chatterjee, Adv....for the respondents.. The Court : Heard Mr. Aryak Dutt, learned standingcounsel for the appellant and Mr. Anil Kumar Dugar, learnedAdvocate for the respondent/assessee. This appeal was admitted by order dated 6[th] August, 2014on the following substantial questions of law: “1. Whether on the facts and in thecircumstances of the case the Ld. Tribunal has erred inlaw in upholding the order of the CIT (Appeal) that theprofit arising out of sales of shares were to betreated as Short Term Capital Gains or Long Term Capital Gains only instead of treating the same asbusiness income of the assessee ? 2. Whether on the facts and in thecircumstances of the case the Ld. Tribunal has erred inlaw in not considering that the transaction of theprevious as well as succeeding assessment years has norelevance in the context of determining the nature oftransaction for a given assessment year so far as thetransactions of sales of shares are concerned ?”We find that the Tribunal has considered the questionof long term capital gain and short term capital gain inparagraphs 7 and 8 of its order impugned herein dated 8[th]January, 2014, which are reproduced below: “7. We have heard the rival submissions and perusedthe orders of authorities below. Share capital withreserve and surplus of the assessee as on31.03.2008 stood at Rs.21,04,76,870.38 vide auditedbalance-sheet at page 12 of the paper book. Againstthis, its investment came to Rs.2,11,58,090.47,whereas loans and advances were to the tune ofRs.17,08,87,261.89. As on 31.03.2007 these figureswere Rs.11,13,06,258.79, Rs.2,55,62,816.36 andRs.7,91,88,116.40 respectively. What is clear fromthe above is that the loans and advances whichstood at Rs.7,91,88,116.40 as on 31.03.2007increased to Rs. 17,08,87,261.89 by the end of theyear. As against this, it’s investment ofRs.2,55,62,816.36 had come down to Rs.2,11,58,090.47. Viewed from any angle, loans andadvances given by the assessee-company weresubstantially higher than its investments. We can therefore safely say that assessee was more engagedin the business of giving loans and advances.Memorandum of Association of the Company placed atpages 41-53 of the paper book shows that its mainobject was manufacturing and dealing in plastic andsynthetic raw materials as also manufacturing andfabrication of rubber and rubber products. Duringthe relevant previous year, assessee had not doneany transactions of this nature. By virtue of itsancillary object which say that it can invest anddeal with surplus money not immediately requiredfrom time to time as determined by its Directors,it could have invested its surplus in shares andalso given-loans and advances. As per the auditedbalance-sheet as on 31.03.2007, a copy of which isplaced at page 7 of the paper book, assessee didnot hold any shares as stock in trade. It held it’sshares under investment portfolio only.8. Now coming to the shares purchased anti sold bythe assessee during the relevant previous year,list thereof has been reproduced by the AssessingOfficer at pages 7 & 8 of his order. Except for2000 shares in NMDC Ltd., 95,699 in NiccoCorporation Limited and 100 shares in CiplaLimited, totalling to 97,799, all other shares outof total 11,26,720 purchased and sold were that ofM/s. Kalpana Industries Ltd. In other words 91.33%of the total shares purchased were of M/s. KalpanaIndustries. There is no dispute that M/s. KalpanaIndustries Ltd. was a group company of theassessee. Thus major part of the shares held was ofa group company. Assessee was consistently showing this as an investment. Neither in the precedingprevious year nor in the succeeding previous yearassessee had indulged in an activity resulting in asurplus or loss on sale of shares. Audited Profit &Loss A/c. of the assessee as year ended 31.03.2009placed at page 31 of the paper book showed thatthere was no income whatsoever from sale of shareseither under the head “income from capital gains”or otherwise. Similarly, the audited profit andloss a/c. for the year as on 31.3.2007 placed atpaper book page no. 6, clearly show that it had noincome from sale of shares. Thus in our opinion,Assessing Officer went off tangent in consideringthe transactions of the impugned assessment year inan isolated fashion, ignoring the results for theimmediately preceding year as well as thesucceeding year. In our opinion assessee was ableto demonstrate its intention of holding the sharesas investment. Once such intention is demonstratedthe sale would result in capital gains and notbusiness income. No doubt, Hon’ble jurisdictionalHigh Court in the case of Sree Krishna PropertiesLtd. (supra) had held that description of shares asstock-in-trade in the balance-sheet was notdecisive. However, here not only description butthe intention to hold the shares as investment, wasclear from the activities undertaken by theassessee in the preceding as well as succeedingperiod. We are, therefore, of the opinion that Ld.CIT(Appeals) was justified in holding the surplusarising out of sale of shares as capital gains. Wedo not find any reason to interfere with the order of Ld. CIT (Appeals). Ground No. 1 of Revenuestands dismissed.” It could not be disputed by learned counsel for theappellant that the main object of the respondent assessee ismanufacturing and dealing in plastic and synthetic raw materialas also manufacture and fabrication of rubber and rubberproducts. It’s ancillary object is investment and dealing withsurplus money not immediately required from time to time asdetermined by its directors. The Tribunal has found, as amatter of fact and based on evidence, that in the earlier andsubsequent assessment years, the respondent/assessee had notindulged in activity resulting in a surplus or loss on sale ofshares. It is only during the assessment year 2008-09 i.e. theassessment year in question that the assessee had sold shareswhich resulted in some long term capital gain and some shortterm capital gain. The audited balance-sheet of therespondent/assessee also demonstrates intention of the assesseethat he was holding the shares as investment. The findingsrecorded by the Tribunal with respect to the holding of sharesby the respondent/assessee as investment and sale thereofresulting in long term capital gain or short term capital gain,are findings of fact based on consideration of relevantevidence on record. The findings of the Tribunal does notsuffer from any perversity. For all the reasons aforestated, we do not find anymerit in this appeal. Consequently, the substantial questionsof law as reproduced above, are answered against the revenueand in favour of the assessee. The appeal (ITA/48/2014) is dismissed. (SURYA PRAKASH KESARWANI, J.) (RAJARSHI BHARADWAJ, J.) As.